- The institutional demand for exposure to Bitcoin has continued to grow significantly in the derivative space.
- Goldman Sachs has started to offer a new derivative product to its clients, which closely tracks the price of Bitcoin.
- The derivative offering is being settled with cash and does not require to hold the actual underlying.
Recently, the investment banking giant began offering trading with non-deliverable forward contracts, a derivative tied directly to the price of Bitcoin and pays out in cash. These derivatives are contracts between two parties that take place in the OTC market and both parties agree to settle the difference between the spot price and the contracted price at a specific date.
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The bank protects itself from Bitcoin’s infamous volatility by buying and selling Bitcoin Futures contracts in block trades on CME Group Inc., using Cumberland DRW as its trading partner. This way, Goldman clients would be able to speculate on the Bitcoin price. The end goal is to provide its customers access to products that track the volatility of Bitcoin’s price without having to hold the actual underlying while transacting it.
The institutional demand for exposure to Bitcoin has continue to grow significantly in the derivative space and being able to work with partners like Cumberland will help the company expand the scope of its business.
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Banks are still wary of the regulatory challenges of holding a Bitcoin position outright. As these derivative offering is being settled with cash, it does not require dealing with physical Bitcoins. In a similar way, other investment banks such as Morgan Stanley and JPMorgan give customers access to financial vehicles tracking Bitcoin’s price while using a third party to buy and hold the underlying Bitcoin as a currency.
It is also rumoured that Goldman Sachs may next offer its hedge fund clients exchange-traded notes (ETNs) based on Bitcoin or access to the Grayscale Bitcoin Trust.